Repositioning SPIAs in Retirement

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Single-premium immediate annuities (SPIAs) can deliver superior retirement outcomes by reducing sequence-of-return and inflation risks if a portion of the monthly payments are systematically invested in equities.

Consider that in the context of a number of contributors to Advisor Perspectives and elsewhere who have written favorably about SPIAs, including Michael Edesess, Allan Roth, and Joe Tomlinson.

Retirees are not getting the message.

SPIA sales are languishing: According to LIMRA, sales grew a meager 2% in 2019 and fell dramatically in 2020. One reason has been the steady decline in long-term interest rates; annuity payments per dollar of deposit have shriveled. With paltry payouts, clients may shy away from SPIAs. Limited liquidity and worries about premature death are further disincentives.

This article offers a different perspective on integrating SPIAs into retirement plans. I present an implementation that links the relative attractiveness of longevity credits in a low-interest rate environment to the mitigation of sequence-of-return and other retirement risks through a rising equity glide path.